Ten Biggest Mistakes - Keys to the Vault

THE TEN BIGGEST MISTAKES

The difference between a rut and a grave is only a few feet. If venture capitalists and other professional investors have tons of money and are actively looking for deals to invest in, and if only one out of every hundred Business Plans they receive gets funded, then entrepreneurs must be making some mistakes. If you have an idea or a Plan that isn't receiving the attention you'd like from the investment community, chances are you're committing one of the top ten most common mistakes that entrepreneurs make when they look for funding. This top ten list is boiled down from more extensive information in my book KEYS TO THE VAULT: 274 Lessons From The Pros on Raising The Money and Igniting Your Business.

#1 It's Not About the Gizmo

Entrepreneurs have a tendency to fall in love with their ideas, just as parents fall in love with their babies. Any time we're in a creation mode, whether it's an idea for a new business or in a negotiation, we tend to believe that because it's ours, it's simply the best. We tend to be blinded by our own brilliance

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Every investor knows that the concept is merely one of the ingredients that go into a successful business. Furthermore, they'll tell you that the product or service you're proposing is one of the least important ingredients in the mix. Nevertheless, inventors' and entrepreneurs' fixation on the product remains largely undaunted. They think that because it's faster, cheaper, stronger, longer lasting, lighter, tastier, or more convenient, that it will automatically be a smash hit. Nothing could be further from the truth.

Numerous very successful companies have been built around products that are none of the above. Direct competitors, such as Apple and Microsoft, have very similar products (I know Mr. Jobs and Mr. Gates would probably dispute this), and yet one company completely dominates the marketplace while the other languishes and struggles to survive. The difference between the success of Microsoft versus Apple is NOT about the product. It's about the business acumen of the people running the companies. It's about the niche and the positioning and the marketing and the systems.

Dreaming up the idea is the easy part. Implementing it is where the real work begins. It's about Execution.

#2 You Don't Know Your Market

Products don't sell themselves. There's no such thing as "If you build it, they will come." That was a clever line from a movie, but in the business world, figuring out who your market is, how big it is, and how you'll talk to them is everything.

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My formula for success is in three simple steps: Find out what they want, go and get it, give it to them. I call it TUFFS -- The Universal Formula For Success -- because no matter what business you're in, if you adhere to these principles you will succeed and prosper.

The first step is to figure out what they want. You must know where your customer is in pain and be able to prove to yourself and an investor that your product addresses the customer's problem. If you don't have a proof of concept, raising money will probably be relegated to your friends and family -- the only ones who don't want to hurt your feelings by telling you you don't have a clue. No one will buy anything if it doesn't meet some need.

If the market is too narrow or small, it limits the potential size of your company. The broader the potential market, the greater the likelihood you'll attract serious attention and competition once you get on the big boys' radar screens. If the market is too broad, it's hard to focus, especially in a startup mode. The key is to find a manageable, specific, targeted niche. Without a focused niche, you'll find that attracting serious investment capital is difficult if not impossible.

Southwest Airlines has peanuts, Singapore Airlines has caviar. Nike sells attitude. WalMart sells "Everyday Low Prices" and "No Questions Asked, Money Back Guarantees." Kodak markets memories, and AT&T pitches "Reach out and touch someone." They all

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have successfully identified a niche in the market and have a focused marketing strategy. They all have potentially huge markets. They have differentiated themselves from their competitors with their positioning in the marketplace.

#3 You Haven't Been There, Done That

Too many entrepreneurs are all hat, no cattle. They talk a good game, but have never been there, done that. Investors require that management have a track record. Money does follow management. As a well-known venture capitalist in my town says: "It's always about the jockey, not the horse."

Investors know that the people who designed the car are not usually the same people who take it out to the Indy 500 to race it. These are two different skill sets. Investors are risk takers, but they like to quantify and mitigate as many of these risks as possible prior to making a bet.

Most investors will not compromise on the quality of the management team. If you're an entrepreneur and have no experience, it's incumbent on you to surround yourself with people who have been around the track before. Business people who have shown expertise in starting, building, growing and running a company are crucial for success.

All deals hit roadblocks and have problems. No Business Plan has ever been perfectly executed. The management team is responsible for making the decisions that result in the financial performance of the company. All other things being equal, if the team

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makes good decisions, the company will have good numbers. Bad decisions will turn into bad numbers.

#4 It's Not About the Projections

Projections are not facts and are therefore cause for healthy skepticism on the part of professional investors. As Charlie Munger, Warren Buffett's long-time partner has said, "Projections are put together by people who have an interest in a particular outcome, have a subconscious bias, and their apparent precision makes them fallacious. They remind me of Mark Twain's saying, `A mine is a hole in the ground owned by a liar'." He goes on to say that projections are the worst kind of lie because the forecaster often believes them. If you believe your own lie, you have no chance of getting to the truth.

Many entrepreneurs spend more time working on the projections than they do on figuring out if anyone wants their product. Projections without good, detailed notes and wellfounded assumptions are meaningless. And notes and assumptions are only as good as the management team who will be making decisions for the company.

Bottom line: market research and management are much more important than projections.

#5 You Thought Money Could Fix Your Problems

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